Q2 results released by Cisco on Wednesday reflect a European market that is still struggling under tough macroeconomic conditions. Revenues during the three months ending January 26th decreased 5% in EMEA – due to Southern Europe in particular. In total, Cisco grew Q2 revenues by 12% over last year to $12.1b. Non-GAAP net income was $2.7 billion, up 6.2%. (Note that a tax benefit positively impacted earnings.)
Cisco’s growth areas are not surprising: data centre, wireless, video and services. Indeed, the services business grew 10%. A key growth driver is its “smart services” – software and analytics to improve the performance of networks. Cisco’s aspiration is for services to account for up to 26% of its business (currently 21% of Cisco’s EMEAR - see Cisco reliant on Partners for services growth).
Like Dell, Cisco is trying to transition its business for long-term viability. For example, over the last 18 months it has spent $7b on 14 acquisitions. In Q2 specifically, it divested of its Linksys business and acquired Meraki (see Cisco to buy Meraki for $1.2bn). It is Cisco’s cash position that is enabling its change programme, and regardless of size, other suppliers should take note of this approach. IT buyers are demanding new and better services (i.e. more efficient and effective services) as they move from ‘survival mode’ post-credit crunch, to growth mode. And this of course can only happen if there is the cash in the bank to fund it. (Read more about our Predictions for infrastructure services in 2013 here.)
Cisco is a ‘super tanker’ and its transformation will take time and an enormous amount of cash. There is no doubt it has the cash, but the question remains as to whether CEO John Chambers will achieve his objectives before he retires (in 2-4 years).